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DOCTRINE:
FACTS:
Tropical refused to pay the increased and rent and continually negotiated
a P60K or 2% of gross sales whichever is higher monthly rate because of their
“low sales volume”. Broadway continually refused until Tropical took a different
stance and stated that Broadway cannot just arbitrarily and unilaterally increase
rentals and that they are not in a financial position to agree to such an
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Digested by: Kent John Evangelista
ISSUE:
Whether or not the letter-agreement dated April 20, 1982 novated the
Lease Contract of November 28, 1980?
RULING:
It is clear that the letter-agreement of Apr 1982 did not extinguish or alter
the obligations of Tropical and the rights of Broadway under the Lease Contract
of Nov 1980. It was expressly stated in the Apr 1982 agreement that it was a
“provisional agreement should not be interpreted as amendment to the contract
entered into” by both parties. There is nothing in the text of this agreement that
could suggest that the reduced concessional rental rates could not be terminated
by Broadway without the consent of Tropical. Also, the course of negotiation
between the two parties before the execution of the letter-agreement clearly
indicates that what they were negotiating was supposed to be only temporary.
Secondly, the Nov 1980 Lease Contract made it clear that a temporary
and provisional concessional reduction of rentals that Broadway might grant was
not to be construed as alteration or waiver of any way to the terms of the lease
contract itself. The course of discussions between the parties after the execution
of the letter agreement shows that there was no agreement that the reduction in
rentals is to persist for the rest of the 10-year lease.
Finally, the “low volume of sales” that Tropical was stating as their cause
for petitioning a reduction in rental rates was based on feasibility study that
Tropical had made on its own before Tropical and Broadway have entered into
their 1980 lease contract. It was no more than an expression of Tropical’s own
expectations when it entered into the Contract of Lease.
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